Vikram Pandit has abruptly quit as chief executive of Citigroup after an
apparent boardroom clash over pay and how best to run one of the world’s
biggest banks.

Investors were both stunned and baffled as Mr Pandit departed just 24 hours after Citi won praise from Wall Street for better-than-expected third-quarter profits. Citi, which employs about 10,000 people in London and has the biggest overseas operations of any

US bank, named Michael Corbat, a 29-year veteran of the bank, as its new chief executive.

“The timing of the move is shocking,” said Adam Sarhan, the chief executive of Sarhan Capital in New York. “Why they didn't announce it with the earnings is a question that needs to be answered.”

As Wall Street digested Mr Pandit’s shock exit, both sides insisted that it was nothing of the sort. “I’ve been thinking about this for a long time,” Mr Pandit said, suggesting he was ready to do something else.

Michael O’Neill, who has been Citi’s chairman since taking over from Dick Parsons in March, told incredulous analysts on a hastily arranged conference call that “it wasn’t a complete shock,” adding to the confusion. He said the company had spent the past two years working on a succession plan and that Mr Corbat had always been a candidate.

However, Mr O’Neill appeared to signal that tensions had been building over the operating performance of the bank. He said he believed Mr Corbat, who until Tuesday ran Citi’s European operations in London, would “place a special emphasis on sharpening the focus on sustainable operating profits”.

The sudden departure prompted Moody’s to cut the bank’s rating outlook to negative.

Although the change took investors by surprise, this year has seen some significant setbacks for a bank that took a $50bn (£31bn) bail-out from the US taxpayer at the height of the financial crisis.

In March, the Federal Reserve rejected its plan to return cash to shareholders – while approving those of rivals such as JP Morgan – after Citi was one of only four out of 19 banks to fail stress tests.

A month later, Mr Pandit and the board were dealt a blow after a majority of shareholdersfailed to back a $15m package for the chief executive. Then, last quarter Citi was forced to write down the value of its holding in Smith Barney, a joint venture with Morgan Stanley.

Speculation of a falling out in the boardroom intensified because Tuesday also saw the departure of John Havens, Citi’s president and chief operating officer and a long-term ally of Mr Pandit.

Citi said: “Mr Havens said he had already been planning retirement from Citi at year-end but decided, in light of Mr Pandit’s resignation, to leave the company at this time.”

Mr Havens used to run Citi’s in-house hedge fund group, Citi Capital Advisors (CCA). Sources told The Telegraph that Mr Pandit, who is expected to get $8m in deferred shares, could join hedge fund Portman Square Capital. It is a revived version of Old Lane, the hedge fund group he founded and sold to Citi in 2007.

Portman is due to start trading at the beginning of next month with $500m of assets under management, making it one of the biggest hedge-fund launches of the year. It is named after the location of the London offices which were the original European headquarters of Old Lane. Citi acquired Old Lane for $800m in July 2007, a deal that saw Mr Pandit pocket $165m.

Portman is run by Sutesh Sharma, the former head of proprietary trading at Citi who is a long-standing friend and colleague of Mr Pandit’s from when the pair worked together at Morgan Stanley.

Citi has been known as a strong backer of hedge funds under Mr Pandit, whose first job at the bank was taking over CCA. Five months later, he took the top job after Chuck Prince stepped down as the US sub-prime mortgage market imploded, but he retained a strong interest in the unit.

While other banks started winding down their proprietary trading andhedge fund operations, Citi has known to be investing in the area.

Mr Pandit’s interest in the area was one of the sources of tension with the board over strategy. In February this year, Mr Haven announced that Citi planned to sell a “significant” part of CCA to its managers in a move that was seen as capitulation to the in-coming Volcker Rule which aims to separate investment banks and hedge funds.

Five years after the Old Lane sale brought Mr Pandit to Citi, the Indian-born banker said that he made the decision quit on Monday afternoon. He didn’t “believe in having lame-duck sessions, in having the outgoing CEO looking over the shoulder of the incoming CEO,” he told Bloomberg.

On a day of high drama on Wall Street, analysts pressed both Mr O’Neill and Mr Corbat on what they will now do to revive a share price that slumped 88pc during Mr Pandit’s tenure. “Today’s changes do not reflect any desire to alter the strategic direction of Citi,” Mr O’Neill said.

Since turning to the US taxpayer for a bail-out in 2008, Citi has been slowly offloading assets and businesses, while trying to expand its commercial and consumer banking operations in the US and Latin America.

Mr Corbat, who has been at the bank since leaving Harvard University in 1983, said that his focus will be on “operating performance and a really refined focus on that”. His priorities, he said, are the bank’s budget for next year and resubmitting a plan to the Fed to be able to return cash to the bank’s weary shareholders.